761 HOUSING OUTLOOK FOR 1975 HEARING BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FOURTH CONGRESS FIRST SESSION JULY 18, 1975 Printed for the use of the Joint Economic Committee 0 U.S. GOVERNMENT PRINTING OFFICE 66-797 WASHINGTON: 1976 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 -Price $1.10 JOINT ECONOMIC COMMITTEE (Created pursuant to see. 5(a) of Public Law 304, 79th Cong.) HUBERT H. HUMPHREY, Minnesota, Chairman WRIGHT PATMAN, Texas, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama RICHARD BOLLING, Missouri WILLIAM PROXMIRE, Wisconsin HENRY S. REUSS, Wisconsin ABRAHAM RIBICOFF, Connectieut WILLIAM S. MOORHEAD, Pennsylvania LLOYD M. BENTSEN, JR., Texas LEE IH. HAMILTON, Indiana EDWARD M. KENNEDY, Massachusetts GILLIS W. LONG, Louisiana JACOB K. JAVITS, New York CLARENCE J. BROWN, Ohio CHARLES H. PERCY, Illinois GARRY BROWN, Michigan ROBERT TAFT, JR., Ohio MARGARET M. HECKLER, Massachusetts PAUL J. FANNIN, Arizona JOHN H. ROUSSELOT, California JOHn R. STARE, Executive Director SENIOR STAFF ECONOMISTS JERRY 3. JASINOWSKI JOHN R. KARLiK LOUGoHLN F. MCHUGH COURTENAY M. SLATER RicHA,RD F. KAUFMAN, General Counsel ECONOMISTS WILLIAM R. BUECHINER WLLLIAM A. Cox LuCY A. FALCONE ROBERT D. HAMRIN SARAH JACKSON L. DOUGLAS LEE RALrH L. SCHLOSSTEIN GEORGE R. TYLER LARRY YUSPZE MINORITY GEOBGE D. KRUMBHAAE, Jr. (Counsel) M. CATHERINE MILLER (H) CONTENTS WITNESS AND STATEMENTS FRIDAY, JULY 15, 1975 Humphrey, Hon. Hubert H., chairman of the Joint Economic Committee: Page Opening statement 1 Hills, Hon. Carla A., Secretary of Housing and Urban Developmentc---- 3 SUBMISSIONS FOR THE RECORD FRIDAY, JULY 18, 1975 Hills, Hon. Carla A.: Response to additional written questions posed by Chairman Humphrey ---- 31 Response to additional written questions posed by Senator Javits-- 83 (III) HOUSING OUTLOOK FOR 1975 FRIDAY, JULY 18, 1975 CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, D.C. The committee met, pursuant to notice, at 10:15 a.m., in room 1202,. Dirksen Senate Office Building, Hon. Hubert H. Humphrey (chairman of the committee) presiding. Present: Senators Humphrey, Sparkman, Proxmire, and Javits; and Representative Brown of Michigan. Also present: Ralph L. Schlosstein, Courtenay M. Slater, Jerry J. Jasinowski, and George R. Tyler, professional staff members; Michael J. Runde, administrative assistant; George D. Krumbhaar, Jr., minority counsel; and M. Catherine Miller, minority economist. OPENING STATEMENT OF CHAIRMAN HUMIPHREY Chairman HUMPHREY. The committee will come to order. May I first say that I was privileged to have a visit this morning from a gentleman from the Turkish Parliament. I just wanted to recognize his presence and the importance of the relationship between our two countries even though the problems are sometimes very difficult. And I was just saying to the chairman of the Foreign Relations Committee that I need his help on this occasion. We welcome the Secretary of our Housing and Urban Development. Agency. Today the Joint Economic Committee is holding a hearing: on the housing industry and its role in the hoped for economic recovery. The committee intends to examine the outlook for the home con- truction industry in the next year and the policies that will be necessary to improve this outlook. A quick look at the current situation clearly' indicates that the depression in the housing sector is far from over. The morning press carried disappointing news relating to housing starts. Those housing starts which had made a recovery in May reversed again and suffered a 5-percent decline in June. I said to a group of my constituents who, were in to see me this morning if we cannot have housing starts in, June, there is not much hope for housing starts in October, November,. once the snow starts coming and the cold sets in, the rate of housing starts in the upper Midwest, and that includes a substantial part of the country, is severely retarded. The data that was released yesterday indicates that the annual rate of housing starts in June was 1,070,000 units, approximately 40 per- cent of the goals that the Congress and the executive set in the Housing Act of 1968. Building permits remained essentially unchanged in (1) 2 ,June, but are still well below permits for June 1974, which was hardly :a banner year. Unemployment in the construction industry was 21.8 percent in May, which is more than twice the unemployment rate of just 1 year ago. An unprecedented 1 million construction workers are currently out of work. The picture painted by these statistics is hardly one of a booming recovery. It does not even indicate that the housing industry has bottomed out. The housing construction recovery, which the administration has been counting on to spearhead a full blown eco- nomic recovery, simply has not materialized. In fact, the housing sector, which is supposed to be the "Moses" sector leading economic recovery, has turned out to be another Rip Van Winkle sector, a slight yawning upturn last month only to go back to sleep this month. Unfortunately, the outlook for the housing industry for the remainder of the year is not much brighter even though we will have some dis- cussion here as to the outlook, of the industry. Mortgage rates have remained at unacceptably high levels, despite unprecedented flows of new savings into the thrift institutions. The median price of new and existing housing has continued to rise despite the recession-induced reduction in demand which should, under normal circumstances, lower prices. Fewer and fewer American families are able to afford decent homes. A recent study done by the Joint Economic Committee shows that many middle-income families are no longer able to afford either new or existing housing. Our study found that only 15 percent of American families have sufficient income to support all the housing expenses associated with the median priced new home. Only 20 percent of all American families can afford the median priced existing home. The study further showed that an annual income of $23,330 was required to meet the monthly expenses on the median priced new home and that $21,170 was required to meet the expenses on the median priced existing home. The high cost of new and existing housing combined with declining real incomes-I underscore the word real incomes-has turned our national goal of a "decent home in a suitable living environment for all families," at least temporarily, into an empty promise, and re- grettably, a sham. Unfortunately, the housing policies of the current administration have offered little hope for improvement in the housing outlook. First, the administration has offered few new incentives that will stimulate new constiuction and rehabilitation and reduce the intoler- able unemployment rate in the construction industry. The new section 8 program has been turtle-like in its conception and stimulated virtually no new production. Other programs such as sections 235 and 236 have been completely suspended or so over- burdened with regulations that they have been redtaped out of existence. Yesterday we had Mr. Klutznick testify. Mr. Klutznick from Chicago and New York is obviously one of the better informed men in the field of housing and he commented upon sections 235 and 236 as to how they have literally come to a standstill as far as their effectiveness is concerned. In essence, the administration's position has been to let the market forces operate while the bottom has been falling out of the market. 3 Second, the administration has done less than nothing to make housing more affordable to the average family. Now I say less than nothing, which is rather a harsh phrase, because as I see it the admin- istration has vetoed the only initiative, congressional or Executive, designed to reduce the high cost of homeownership. This was a bill that was sponsored by Senator Proxmire. This bill, the Emergency Housing Act of 1975, would have provided affordable mortgages to 400,000 middle-income families, making housing available to a broader group of Americans. Unfortunately, this proposal was re- jected in the President's veto message because "there are clear signs of recovery in this vital part of the American economy." I ask anybody to take that statement and place it against the known facts of the June housing statistics and all of the projections we have. The signs of recovery have been short lived, indeed. Finally, housing assistance to low- and moderate-income families has been at an impasse. The programs, sections 235 and 236, have been completely discontinued while the new program, section 8, is just getting off the ground. In the interim the number of housing starts subsidized by HUD has declined to 58,000 in 1974 from 386,000 in 1971. Unfortunately, this decline has exacerbated the most severe housing depression since the Second World War. Today we will receive testi- mony on the administration's view of the outlook for housing in 1975 and I hope the outlook for 1976. We will also examine the specific initiative that the administration is currently undertaking to improve this outlook. We are indeed fortunate to have with us today Carla Hills, the Secretary of Housing and Urban Development. We greatly appreciate your willingness to share your thoughts on the housing outlook with us. I commented to you privately that I had seen you on a morning television show where I thought you did an exemplary job explaining what you were undertaking. I know you are relatively new to this particular assignment, surely not at all new to public service. I believe that I speak for all members of the committee when I extend a sincere welcome to you in your first opportunity to testify before this committee, and we look forward to your observations, Hopefully you will give us some encouragement that will keep the sun shining here in terms of the housing industry.